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Assignment 8

Uploaded by

samiullah342312
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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INSTITUTE OF BUSINESS MANAGEMENT

COLLEGE OF BUSINESS MANAGEMENT

ECO 101 Principles of Microeconomics

Assignment # 8

Q. 1. Define the followings:


a. Explicit cost b. Implicit cost c. Accounting Profit d. Economics Profit
e. Normal Profit f. Super normal/Abnormal profit g. Sub normal profit.

Q. 2. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to
rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant.
What is your aunt’s economic cost of running a hardware store for a year? If your aunt thought she could sell
$510,000 worth of merchandise in a year, should she open the store? Explain.

Q. 3. Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of
workers and Nimbus’s output in a given day:

Workers Output Marginal Total Average Marginal


(L) (Q) Product Cost Total Cost
of Labor (TC) Cost (MC)
(MPL) (ATC)
0 0
1 20
2 50
3 90
4 120
5 140
6 150
7 155

a. Fill in the column of marginal products. What pattern do you see? How might you explain it?
b. A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column
for total cost.
c. Fill in the column for average total cost. (Recall that ATC=TC/Q.) What pattern do you see?
d. Now fill in the column for marginal cost. (Recall that MC=ΔTC/ΔQ.) What pattern do you see?

Q. 4. Describe in words, mathematically and graphically the relationship between AVC and average product (AP),
between marginal cost (MC) and marginal product (MP).

Q. 5. Jane’s Juice Bar has the following cost schedules:

Quantity (Q) Total variable cost Total Cost (TC)


(TVC)
0 0 30
1 10 40
2 25 55
3 45 75
4 70 100
5 100 130
6 135 165
a. Calculate average variable cost, average total cost, and marginal cost for each quantity.
b. Graph all the three curves. What is the relationship between marginal-cost curve and the average-variable-
cost curve? Explain.

Q. 6. Answer the followings:


a. Derive Total Product curve from Marginal Product curve. Explain the process in words.
b. Derive Total Cost and Total Variable Cost curves from marginal cost curves. Explain the process in words.

Q. 7. Complete the table below:

Q TC TFC TVC MC AFC AVC ATC


0 50
1 70
2 100
3 120
4 135
5 150
6 160
7 165

Note: The assignment should be hand written on foolscap sheets and a


scanned copy should be uploaded on LMS

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